The Aerosmith frontman is said to have been spurred on by Jennifer Lopez's contract negotiations, which could see the recently single star earn an estimated $20 million (£12 million) a year - twice her current salary.
"Jennifer's management is close to brokering her a huge deal to come back to the panel for at least one more season, but the side effect is that it means her fellow judges also want more money," a source told the New York Post.
"Steven is halfway through a two-year deal, and his management has asked for more money. They argue he was just as sensational and as popular on the panel as Jennifer.
"On the other side, show bosses argue he's tied into a deal and has to stick to it. However, it's hoped they can come to a compromise to keep Steven happy, because the producers love him."
American Idol executive producer Nigel Lythgoe recently called Tyler "the sweetest of souls", and said that he is "really grateful for the person [Tyler] is".
Watch Steven Tyler perform 'Dream On' on American Idol below: